Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. On Friday I was not here at the office, I was not out of town, I just took the day off to spend with the family, we lounged around and did as little as possible. Which is hard for me, I am fidgety at the quietest of times, I have to learn to try and do nothing, but I figured when I get much older that there will be time for that. It was another record close for the Jozi all share index, up nearly one quarter of a percent to end at 35574 (and a half). Some are worried about the dizzying heights, I suspect that all we have that is different here is a removal of the European worst case scenario overhang. As we ask facetiously each morning, "Is Greece still in the Euro-zone?" with the known answer is just a reminder again of how anxious people get about the future based on the present news. So these might be new highs, but they are (for us at least) by no means dizzying. In the absence of bad news, and a little more good news, in the form of US payroll data, we are making headway higher.
Byron's beats tunes into a trading update from last week. There have been problems in the mining sector in South Africa as a result of rising costs, and then there has been the problems in the platinum sector. Which have been really well documented both by ourselves and others. You know it, the platinum sector.
- On Wednesday we had a trading update from Impala Platinum which as expected from the sector, did not look good. In fact, as it came out, Paul asked whether this number was for the half year or the full year? Unfortunately these numbers are for the full year. Here is what the announcement had to say.
"Shareholders are advised that Implats headline earnings per share (HEPS) and basic earnings per share (EPS) for the financial year ended 30 June 2012 are expected to be between 645 and 695 cents. This is lower than that of the financial year ended 30 June 2011 (HEPS and EPS of 1 105 cents) primarily due to lower sales volumes as a result of the strike at Impala Rustenburg."
This is a sad situation. Last year forward earnings for the stock looked well ahead of 1105c. Now, due to a combination of a very tough local environment and a depressed platinum price they have nearly halved. That strike at Impala Rustenburg (their biggest mine) at the beginning of this year was devastating. Remember at one stage nearly the entire workforce at the operation were not reporting for duty. This was due to an alternative union known as the Association of Mineworkers and Construction Union (AMCU) entering the scene and really stirring things up. Up to 17000 workers were fired and the company lost up to 33 000 platinum ounces as a result.
Let's take a quick look at the numbers. For the first 6 months the company made 573c and big things were expected from this half, especially from the Rustenburg mine. So at 645c-695c the company has had a shocking half, 72c-122c. If we look at the middle of the range 670c the stock is trading on a historic multiple of 20. Of course this strike is seen as a once off so earnings next year should come off a low base but who is to say another issue like this won't repeat itself? Recent history tells us it could very well happen again.
And this is exactly why we got out of the stock last year. These kinds of variables and the current South African mining environment are just too risky. It's also very sad for the industry as a whole. Platinum is one of our biggest exports. We are still bullish on the long term prospects of the platinum price, hopefully that will find some legs soon so it can revitalise our local platinum miners.
New York, New York. 40o 43' 0" N, 74o 0' 0" W. Another winning day and week for US equity markets, all three major indices just managing to squeak into the green close to the closing bell. Perhaps it was the fact that the US Olympic gold medal count kept clicking higher and higher. At the 1900 Olympic games the French passed through 100 medals (101 to be exact) out of a total of just 90 events, absolutely dominating. But in 1900 tug-of-war was an Olympic sport. In 2012 France got only 34 out of a total 302 events. The USA were comfortable winners, whilst I think that team GB surpassed expectations after an average start. Enough, looking ahead to Rio now, the Brazilians get the football and Olympics double to showcase their fine country over the next six years. I am sure they will be fine. I was thinking about doing a piece in which I compared Olympic sporting prowess relative to ones economy, would anyone be interested in that? But then I saw that the FT (subscription only, sorry) did that already, well sort of, in this piece: FT medal table: Who's on top may surprise you.
The bulls run in the indices was late in New York, but welcomed, at least by ourselves. We are optimistic on the sectors that we like. That is the mistake that many people often make with us, thinking that we like everything. We are optimistic on the sectors that we believe have legs over the coming decade. Healthcare. Telecommunication, the internet, new consumers. Those sectors. Not paper. Not tobacco. And dare I say it, simple retail.
Washington. DC. 38o 53' 42.4" N, 77o 02' 12.0" W The Mitt Romney Vice President candidate pick, Ryan Paul, is a guy that I actually like a lot. The Obama administration might call it a right wing decision, but he seems to have all the qualities that you would want. We have had the benefit of seeing a lot of him over the years, because he is very visible on business television. It is largely because he sits on various committees on the hill. He has been a congressman for 14 years, he knows Washington D.C. well. But yet he is still young, fresh faced and seemingly can get things done. I recall being as bold as saying to my colleagues that he might be president of the US one day, he somehow holds me when he talks.
Check out his Wiki page: Paul Ryan. The Hill (strange that a publication is called that) has a blog, which suggests that although the Obama administration respects the fellow, they do not like his conservative fiscal approach: Obama welcomes Ryan to race, slams him for 'top down' economics. The question is whether his running partner, the guy at the top of the ballot, Mitt Romney and his being elected, is more important though. Although the intrade contract Mitt Romney to be elected President in 2012 surged over five percent, but still only stands at 40 odd percent.
This might be a learning curve for Paul. I think that Romney has made a good pick, but we have always maintained that Obama will be re-elected. At least now broader America will have something more exciting for a few months than dare I say it, Sarah Palin. Sadly for those wishing for fun watching, there will be fewer gaffes. Let us see however whether Ryan could invent a new word, like "Refudiate". Paul (Theron) reckons that he might not be the best pick to capture the middle ground, but that both sides liking him is a good thing.
Staying on the subject of Ryan Paul, he is a known fiscal hawk. I am always amazed that the whole "money printing" issue dominates the thought processes, and not how the Fed is fulfilling their dual mandate. Luckily I stumbled across this article from Bob McTeer titled When Money Dies. McTeer is the ex Fed Dallas president. His points are valid, and perhaps he calms the nervous types by saying: "We are not the Weimar Republic and the Federal Reserve (or the ECB for that matter) is not the German Reichsbank of the early 1920s."
But in fact the entire paragraph that follows is perhaps worth regurgitating, why the Fed proceeded with QE. And more importantly what could have happened, had the Fed not proceeded down this path: "quantitative easing has not resulted in money creation in "voluminous quantities." QE1 and QE2 added to Federal Reserve assets and bank reserves, but not substantially to the money supply because of the banks' appetite for holding excess reserves. One might say the Fed is "printing reserves" that lodge on the banks' balance sheets, but is not "printing money" beyond what is needed. While the expansion of bank reserves has not translated into substantial monetary expansion, if bank reserves had not been expanded to meet bank demand, a balance sheet contraction would have been the dangerous alternative."
Many will shout from the rooftops that QE "did not work", but as we often say around here, the alternative would have been worse. Because, we have proof that doing nothing would have been worse. When the Fed and a lack of action from Congress at the start of the Great Depression ensued, it was all fall down. The US economy contracted by over one third. Unemployment went to 25 percent plus. US exports plunged. Banks fell over left right and centre. But those subscribing to more conservative economic perspectives argue that is what must happen. Would that leave us presently better or worse off? Much worse, but hey, it would have levelled everything. Sarcasm alert of course.
Currencies and commodities corner. Dr. Copper is lower at 334 US cents per pound, the gold price is slightly higher at 1621 Dollars per fine ounce. The platinum price is still under pressure, but a little higher on the day. 1400 Dollars per fine ounce is where the price is last. The oil price is last at 93.08 Dollars per barrel. The Rand strengthened significantly last week, I guess as a result of improving market sentiment. 12.74 to the Pound Sterling, 10 exactly to the Euro and 8.13 to the US Dollar. We have started lower this morning, but have been improving steadily throughout the day, as the US Futures have improved a little.
Sasha Naryshkine and Byron Lotter
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